Rolex Watch, U.S.A., Inc. v. Michel Co.
179 F.3d 704, 50 U.S.P.Q. 2d (BNA) 1939, 99 Cal. Daily Op. Serv. 4236 (1999)
Rule of Law:
A product reconditioned or altered with non-genuine parts may no longer accurately bear the original manufacturer's trademark if the alterations are so extensive or basic that they result in a fundamentally different product, even if accompanied by disclosures.
Facts:
- Rolex Watch, U.S.A., Inc. (Rolex) is the exclusive distributor of new Rolex watches in the United States, known for high quality and sold under numerous registered trademarks, including 'Rolex' and the 'Crown Device'.
- Rolex provides a one-year warranty on its watches, which is voided by the addition of non-Rolex parts, and Rolex will not service watches modified with such parts.
- Micha Mottale, doing business as Michel Co. (Mottale), reconditions used Rolex watches with parts not provided or authorized by Rolex.
- Mottale sells these 'altered Rolex watches' and generic replacement parts fitting Rolex watches to jewelry dealers and selected retail jewelers.
- Mottale customizes used Rolex watches by replacing their bezels, dials, and/or bracelets, and/or by inserting diamonds into their dials, using non-Rolex parts.
- The altered 'Rolex' watches sold by Mottale retain their original Rolex trademarks on their dials and bracelets, unless the bracelet itself is replaced, and some replacement bracelets bear an imitation of the Crown Device logo.
- Mottale also sells separate individual refinished or customized dials bearing Rolex trademarks and bracelets with crown designs.
Procedural Posture:
- Rolex Watch, U.S.A., Inc. sued Micha Mottale (doing business as Michel Co.) in federal district court, alleging trademark counterfeiting and infringement, false designations of origin and false description, federal and California trademark dilution, and California unfair competition.
- After a bench trial, the district court found Mottale liable for counterfeit trademark use under the Lanham Act for selling altered 'Rolex' watches.
- The district court issued a permanent injunction, which required Mottale to place an independent, permanent mark on the non-Rolex replacement parts he added and to include a written disclosure in tags, promotions, and advertising of his altered 'Rolex' watches.
- The district court denied Rolex's request for attorneys' fees attributable to the altered watches claim and for treble profits from Mottale’s sales of altered 'Rolex' watches.
- The district court found Mottale liable for selling separate individual refinished dials and bracelets with crown designs bearing Rolex trademarks and required disclosures for these parts when sold separately.
- The district court found no liability for Mottale under section 43(a) of the Lanham Act and federal and state anti-dilution statutes, nor for contributory infringement related to his sale of generic replacement parts.
- Rolex appealed the district court's decision, arguing that the injunctive relief was inadequate, and challenging the denial of attorney's fees and the finding of no contributory infringement.
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Issue:
Does a business commit trademark counterfeiting or infringement by selling used luxury watches that retain the original manufacturer's trademarks but have been significantly altered with unauthorized, non-genuine parts, if only general disclosures are provided?
Opinions:
Majority - TASHIMA, Circuit Judge
Yes, a business commits trademark counterfeiting or infringement by selling used luxury watches that retain the original manufacturer's trademarks but have been significantly altered with unauthorized, non-genuine parts, because such extensive alterations result in a new product, making the retention of the original mark a misnomer, and general disclosures are inadequate to prevent consumer confusion. The court relied on the Supreme Court's decision in Champion Spark Plug Co. v. Sanders, which established that reconditioned goods can retain original trademarks with adequate disclosure, but noted the exception for cases where reconditioning is "so extensive or so basic that it would be a misnomer to call the article by its original name." The court found that Mottale's alterations – replacing bezels, dials, bracelets, or inserting diamonds – were fundamental changes to integral components of the watch affecting its performance, durability, and essential functions (e.g., water-proofing, timekeeping). Citing Bulova Watch Co. v. Allerton Co. and Rolex Watch USA, Inc. v. Meece, the court concluded that these types of alterations transformed the original Rolex watch into a "new product," albeit one containing a Rolex movement and casing. Consequently, the district court's mandated disclosures, such as adding 'Michel Co.' to non-Rolex parts or general written statements, were deemed insufficient to prevent consumer confusion. The court held that the district court abused its discretion by not completely enjoining Mottale from using Rolex’s trademarks on these altered watches. Additionally, the court reversed the district court's denial of attorney's fees under 15 U.S.C. § 1117(b) for the trademark counterfeiting claim regarding altered watches, remanding the issue for proper consideration. However, the court affirmed the district court's denial of damages from Mottale’s profits, finding that Rolex failed to prove with reasonable certainty what portion of Mottale's sales were attributable to the altered watches. Finally, the court affirmed the district court's finding that Mottale's sale of generic replacement parts did not constitute contributory trademark infringement, as Rolex did not prove Mottale intended to induce infringement or had knowledge of others' infringing use.
Analysis:
This case significantly clarifies the 'extensive or basic' alteration exception within trademark law, especially for luxury goods. It establishes that fundamental changes to integral components can transform a branded product into a 'new construction' that can no longer legitimately bear the original trademark, even with disclosure. This ruling offers greater protection to manufacturers of high-value items against unauthorized modifications that could dilute brand identity or mislead consumers, potentially leading to more aggressive enforcement actions against sellers of substantially altered goods.
